The Dilemma With Souring M&As: Should I Stay or Should I Go?

NTT Docomo president Kaoru Kato bows his head at a press conference in Tokyo on April 25, in which the company said it will likely withdraw from its India business.

AFP PHOTO / Yoshikazu TSUNOYOSHIKAZU TSUNO/AFP/Getty Images

When overseas acquisitions turn sour, companies are often tempted to withdraw before things get worse.

But when it comes to a growing but challenging market such as India, experts say the trick is for executives to hang tight – not just a few years but at least a decade and perhaps even longer.

That’s not easy to do. NTT Docomo, Japan’s biggest mobile carrier, said on Friday that it plans to sell its 26.5% stake in Tata Teleservices by June, following five years of losses caused by telecom license cancellations as well as stiff competition. It paid around $2.7 billion to buy the stake back in 2009.

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Docomo’s withdrawal followed an announcement earlier in April by Japanese drug maker Daiichi Sankyo, that it would unload its stake in Ranbaxy Laboratories after run-ins with U.S. regulators over product safety. Daiichi Sankyo’s $4.6 billion investment dates back to 2008.

Yohei Koyama, a lawyer at Mori Hamada & Matsumoto who advises Japanese firms with investments in India, says it’s difficult for businesses to make a profit in India quickly since lower income levels there make it harder for Japanese companies to sell products at higher prices.

“Companies need to have a long-term vision when entering the market,” Mr. Koyama said.

The auto sector is one of the few success stories for Japanese companies in India. Despite the recent economic slowdown, Honda Motor, for example, is now ramping up production in India and enjoying a big jump in sales – though that growth comes after more than two decades in the market.

“The recipe for success is management commitment and the time and money willing to be invested,” said Shinichi Sugai, head of Next Market Research Ltd., a consulting firm for Japanese companies operating in India.

“The decisions to withdraw by Daiichi Sankyo and NTT Docomo came way too early,” he added.

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